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Alstom and Siemens Show How Not to Deal with China (and Vestager) (bloomberg.com)
43 points by jseliger 5 months ago | hide | past | web | favorite | 24 comments

This is the classical example of what happens when you have to chase quarterly (and yearly) results. They traded short term gains for long term losses. Which, most likely, will be some other leadership’s problem.

I once spoke with some Alstom director. He told me that contracts with China required giving away their intellectual property. And they did not have that many other contracts outside China.

I asked him if they weren’t shooting themselves in the foot. He responded: “I can either fire everyone now or in a few years, what would you chose?”.

I’m glad I don’t have to take this kind of decision.

"They traded short term gains for long term losses."

This is the entirety of the problem with modern capitalism, isn't it? There is no way to account for long term losses that stakeholders can put value on. Just look at what we've done to the environment.

I'm not a finance person but it seems there is at least a way to put a value on future gains vs present gains, and it looks like money now is always quantitively better than money later: https://en.wikipedia.org/wiki/Discounted_cash_flow

And that article has a section where it plainly mentions its shortcomings: https://en.wikipedia.org/wiki/Discounted_cash_flow#Doesn't_a...

Just adding to the point, I believe that japanese deal with China in a much more sensible way. Instead of giving away your intelectual property, it’s much better to make it broadly available on the market.

Market grows with more adoption and you become a leader in the paricular field.

That only works if don't get banned from said market.

Can you give an example of this approach?

Intel? USB, PCIE, DP, type-c, ACPI, UEFI, AHCI, NVME, nic offloading standardisation...

The proper response is both an IP transfer condition on all Chinese goods sold in US and Europe, supplemented by tariffs. If Huawei is forced to transfer their hardware, software IP for the right to sell in Europe, China will get a taste of their own medicine

> Far from being a partner, CRRC became the bogeyman that the two companies used to spook European antitrust authorities into waving through Alstom’s takeover of Siemens’s rail unit.

Why do Alstom and Siemens feel such pressure to merge given their Chinese competition? Is it harder for each of these firms to compete individually against a larger company? My understanding of economics is limited.

In the US, we hear all the time about how competition is good in markets because it keeps prices down, which makes sense at a surface level. But articles like this seem to tell a different story: that there are economic forces causing major industry consolidation, which in turn hurts competition and (I'm guessing) increases inequality.

The article sounded to me like they tried to do a merger arguing that CRRC made it necessary..

For these two companies merging might make sense... Certainly they wouldn't have to compete against each other if they did -- that's profit..

That makes sense to me.

What economic forces encourage companies to compete with each other instead of simply merging? I guess put another way: if maximizing profit is the ultimate goal of capitalism, and more profit can be had by merging, why doesn't everyone just merge? Are there market forces that encourage competition outside of government intervention (i.e. antitrust)?

> Are there market forces that encourage competition outside of government intervention (i.e. antitrust)?

If you believe that you have an edge over your competitor, then merging with them isn't the profit-maximizing move. Instead, you could just outcompete them and own the whole market, rather than only part of the market leader.

In software out competing might be simple.. we can easily scale 2x :)

But I would imagine that scaling you train manufacturing by 2x is hard.

Mergers often cause a great deal of distraction for the involved companies, and carry a significant amount of risk for the combined company. If the combined company doesn't manage to combine its product lines, it may not save any costs. If the customers don't like the combined lines, they may switch to a competitor. If the combined company spends too much time figuring out what to do, competitors may win over their customers.

Why merge if you can acquire?

Maximizing profit is not the ultimate goal of capitalism. Maximizing executive compensation is the observable ultimate goal of capitalism. As an example, when Hostess declared bankruptcy they got permission from the court to loot the pension fund to pay 7 figure executive bonuses and shareholders also got dunked on.

Because the CRRC is a state backed SOE not a private company. So the Chinese government will highly subsidize these companies which is why Sieman and Alstom will never actually have a chance to compete with them.

The Chinese market is so huge, CRRC could sell literally nothing outside of China and still be the biggest rail company in the world. The fear is that they could leverage their massive size to win contracts below cost until their competition is bankrupt. But in my opinion if you want to prevent a Chinese company from taking over the European market this way, the correct course of action is not creating a de-facto monopoly in Europe, but instead structuring contracts so that local companies are preferred. That is probably not necessary before CRRC has a significant chunk of the international market, if it is even necessary at all.

Investing as much in rail infrastructure as China currently does wouldn't hurt either.

Seems like blocking this was the right choice..

But I'm curious as to the balance between ensuring competition and giving advantages to local European companies, by letting them merge.. Curious, would this merger have been allowed in the US?

> giving advantages to local European companies, by letting them merge

Doubtfully - putting together 2 weak and broken companies usually just results in them becoming 1 bigger weak and broken company, not stronger.

I doubt it would have been allowed in the US as then 1 company would be nearly half the market.

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